Mutual Funds

Should You Choose SIPs Over Fixed Deposits?

Save & Invest

A Systematic Investment Plan Mutual funds / SIP Mutual Fund is a way of funding mutual funds where people deposit small amounts frequently over time. 

Besides, a Fixed Deposit (FD) is an asset option where people can deposit a certain sum of money for a specified term and get back the share along with interest upon maturity. 

Let’s compare SIP Mutual Fund and Fixed Deposit. And for this comparison, let’s see what these terms are.

What is a Fixed Deposit (FD)?

FD is an investment method that permits people to deposit a certain sum of money for a fixed period. Banks and Non-Banking Financial Companies (NBFCs) deliver this service to the public. 

In the case of Fixed Deposits, you cannot break the FD before its maturity date. If you wish to split your FD, you will have to pay a certain sum of money as charges to the Bank/NBFC. 

On fulfilment of the FD term, the whole amount invested, along with interest, will be credited to the person’s account.

Benefits of Having a Fixed Deposit:

  • The primary advantage you can gain with an FD is that it guarantees secured investment returns.
  • A fixed deposit asset is risk-free.
  • It shows flexibility to the people funding as they can pick the amount and term they want to sustain.
  • You can sell your FDs in a crisis, or the investors can make an overdraft escape.
  • Using your FD, you can apply for a carload and become suitable for applying for a credit card. This benefit can satisfy people who do not have a credit record or have just begun earning.

What is SIP?

Systematic Investment Plans (SIP) are an asset that permits people to deposit small amounts of money every month. SIPs can be considered goal-oriented assets and might act as stepping stones for newbies with mutual funds. People can choose to invest in their amenities. 

With the help of SIP, people can plan for future objectives and fulfil dreams like buying a house or car, preparing for the higher education of children, etc. People can start their SIP investment with a sum of money as low as Rs. 500.

Benefits of SIP Mutual Fund:

  • Individuals can make investments counting on their requirements. It is easy to make a SIP mutual fund, and a premium feature is that you can chase how the assets are accomplished at your amenity.
  • SIPs eradicate the demand for investors to scan interest rates because you can create investments regularly.
  • Tax concessions are another great advantage proposed by SIPs. People who fund SIPs for more than a year can relish tax concessions.
  • In SIPs, money can be financed and drawn at any time as SIPs are in open-ended reserves.

Each month a set amount will get deducted from your savings account towards the mutual fund you have chosen. SIP mutual fund lets you enter the market with small routine payments and takes the load off of making notable lump sum investments. Those funds may serve well initially, but a fickle market can never assure anything. For instance, the fund you have invested in starts constantly underperforming for two to three years. 

Diversification is crucial if you want the highest return from your investments. And the diversification of assets becomes easier with these investment plans.

It is most suited for people who can make small but frequent payments from their disposable income.

Always be picky in choosing funds and ensure you do not have an excess number of equity mutual investments. 

If you know how to fund in SIP and have invested a significant portion of your savings, your returns will unfailingly be zeroed down. It may even go down to negative. 

That is why long-term equity assets are always better, as market kinks are fixed over time. Thus, it is advisable to stay funded till the market smoothes out.

Moreover, it will lower the general return your fund is anticipated to earn. Leaving midway will make you skip out on many good market days that could have brought you quite a high return. 

Typically, the money is auto-debited from your bank account and is funded into the specific mutual fund plan you had already purchased. 

This assigns you a certain number of units relying on the market value of your funds (Net Asset Value or NAV) for the day.

Which one is better for your investment purposes?

SIPs and FDs have their advantages and deliver a lot to those looking to invest. Though the benefits look alike, there is a stark contrast between the two. Let us take a look at what makes them diverse and which alternative you should pick:

Investment Rates

Starting an investment plan is accessible in both choices when looking at the investment type. SIP Mutual Fund has an added advantage where people can begin funding even with a small sum of money. 

The SIP asset frequency can also be set monthly or quarterly to suit an individual’s needs. In the case of a Fixed Deposit, an FD lets a person fund in a lump sum. 

Interest Rates

The rate of interest presented in SIPs is higher than that of FDs, but it does not ensure you the best returns. It would be best if you believed the risk linked to the returns. 

On the other hand, with a fixed deposit, you are sure to get higher returns irrespective of the amount funded in the FD.

Tax Benefits

Tax saving is essential for everyone. A few investment plans provide tax benefits.

Another type of FD that many don’t know about is Tax Saving FD, through which one can claim a deduction on specific investments. In the case of some Systematic Investment Plans, only a particular percentage of the tax will be imposed on the person who is investing money.


Though FDs are the safest choice if you want to invest, Systematic Investment Plan Mutual Funds can also be helpful when you put your hard-earned money to riskless use. After understanding and considering all the risks, you can invest in SIP. 

Get the best advice regarding all financial products and banks from your well-wisher and financial expert, Piramal Finance. Investing in SIPs is profitable, and our experts help you understand your credit score and how to maintain a proper fund management portfolio. This enables you to choose the best personal loan for yourself.